Report of Foreign Issuer (6-k)

Date : 10/30/2019 @ 5:55PM
Source : Edgar (US Regulatory)
Stock : GlaxoSmithKline PLC (GSK)
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Report of Foreign Issuer (6-k)

 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the month of October, 2019
 
Commission File Number 001-15170
 
 
GlaxoSmithKline plc
(Translation of registrant's name into English)
 
 
980 Great West Road, Brentford, Middlesex, TW8 9GS
(Address of principal executive office)
 
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F . . . .X. . . . Form 40-F . . . . . . . .
 
 
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
 
 
 
Issued: Wednesday, 30 October 2019, London U.K.
 
GSK delivers sales of £9.4 billion +16% AER, +11% CER (Pro-forma +6% CER*)
Total EPS 31.4p +9% AER, -1% CER; Adjusted EPS 38.6p +9% AER, +1% CER
 
 
Financial highlights
 
Reported Group sales £9.4 billion +16% AER, +11% CER (Pro-forma growth +6% CER*); Pharmaceuticals £4.5 billion +7% AER, +3% CER; Vaccines £2.3 billion +20% AER, +15% CER; Consumer Healthcare £2.5 billion +30% AER, +25% CER (Pro-forma growth +3% CER*)
Total Group operating margin 22.9%; Adjusted Group operating margin 29.7% reflecting increased spending on R&D and priority assets, and the impact of generic Advair in the US, partly offset by Vaccines performance (Pharmaceuticals 24.1%; Vaccines 50.3%; Consumer Healthcare 24.3%)
Total EPS 31.4p +9% AER, -1% CER, Adjusted EPS 38.6p +9% AER, +1% CER reflecting operating performance and lower effective tax rate offset by increased profit allocation to non-controlling interests
9 months net cash flow from operations £4.6 billion. Free cash flow £2.5 billion
19p dividend declared for the quarter, continue to expect 80p for FY19
Consumer Healthcare JV with Pfizer completed 31 July creating new world leader in Consumer Healthcare
2019 Adjusted EPS guidance improved to expectation of around flat at CER from a decline of -3% to -5%
 
Product and pipeline highlights
 
 
 
Shingrix sales £535 million +87% AER, +76% CER driven by continuing strong execution in the US
Total Respiratory sales £806 million +25% AER, +19% CER. Nucala £203 million +40% AER, +33% CER, Trelegy £139 million +>100% AER, +>100% CER
Total HIV sales £1.3 billion, +5% AER, flat at CER. Two-drug regimen sales £119 million
Continued progress to strengthen and advance R&D pipeline including:
 
 
 
Oncology:
 
-
Positive data presented at ESMO from PRIMA trial of Zejula monotherapy showing significant improvement in PFS in women with ovarian cancer regardless of biomarker status. On track to file by end 2019
 
-
Positive headline data from pivotal DREAMM-2 study of belantamab mafodotin (GSK2857916) for multiple myeloma. On track to file by end 2019
 
-
Positive data from GARNET study of dostarlimab for advanced or recurrent endometrial cancer. On track to file by end 2019
 
-
Positive data presented at ESMO on GSK3359609 (ICOS receptor agonist) plus pembrolizumab in head and neck squamous cell carcinoma. Phase II/III registrational trial announced
 
 
 
 
Respiratory:
 
-
Nucala approved in EU for self-administration by patients with severe eosinophilic asthma
 
-
Trelegy Ellipta submitted to the FDA for use in patients with asthma
 
 
 
 
HIV:
 
-
Long-acting injectable cabotegravir + rilpivirine submitted to EMA as the first monthly treatment for HIV
 
-
Positive phase III results from ATLAS-2M study of cabotegravir + rilpivirine administered every 8 weeks
 
 
 
 
Other:
 
-
Phase III start for first-in-class antibiotic, gepotidacin, in uncomplicated urinary tract infection and urogenital gonorrhoea
 
-
Daprodustat filed in Japan for patients with renal anaemia due to chronic kidney disease
 
 
Q3 2019 results
 
Q3 2019
 
Growth
 
9 months 2019
 
Growth
 
£m
 
£%
 
CER%
 
£m
 
£%
 
CER%
 
 
 
 
 
 
 
 
 
 
 
 
Turnover
9,385 
 
16
 
11 
 
24,855 
 
10
 
7
 
 
 
 
 
 
 
 
 
 
 
 
Total operating profit
2,147 
 
12
 
 
5,059 
 
29
 
20
Total earnings per share
31.4p
 
9
 
(1)
 
67.7p
 
38
 
28
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted operating profit
2,786 
 
10
 
 
7,120 
 
9
 
3
Adjusted earnings per share
38.6p
 
9
 
 
99.2p
 
12
 
7
 
 
 
 
 
 
 
 
 
 
 
 
Net cash from operating activities
2,515 
 
21
 
 
 
4,567 
 
6
 
 
Free cash flow
1,939 
 
25
 
 
 
2,474 
 
4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Total results are presented under ‘Financial performance’ on pages 11 and 24 and Adjusted results reconciliations are presented on pages 20, 21, 34 and 35. Adjusted results are a non-IFRS measure that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results are defined on page 9 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 58. GSK provides guidance on an Adjusted results basis only, for the reasons set out on page 10. All expectations, guidance and targets regarding future performance and dividend payments should be read together with “Outlook, assumptions and cautionary statements” on pages 59 and 60.
*
Reported AER and CER growth rates include two months’ results of former Pfizer consumer healthcare business. Pro-forma CER growth rates are calculated as if the equivalent two months of Pfizer consumer healthcare business results, as reported by Pfizer, were included in the comparative period of 2018. See “Pro-forma growth” on page 10.
 
 
Emma Walmsley, Chief Executive Officer, GSK said:
 
“GSK has made further good progress in Q3, with sales growth across all three businesses, and we have today upgraded our full-year EPS guidance. This quarter we have continued to strengthen our pipeline and have advanced assets in Respiratory, HIV and, notably, Oncology, where we are on track to file three innovative medicines by year end, following positive pivotal trial data. We also achieved a significant milestone with the completion of our new Consumer Healthcare Joint Venture with Pfizer, to create a new world leading consumer healthcare business.”
 
 
2019 guidance
 
GSK now expects 2019 Adjusted EPS will be around flat at CER. This new guidance represents a further improvement to that previously given in July 2019 of an expected decline in Adjusted EPS in the range of -3% to -5% at CER. The new guidance reflects operating performance in the nine months, increased investment in R&D and priority assets and a lower expected effective tax rate of around 17% for the year.
 
GSK expects to maintain the dividend for 2019 at the current level of 80p per share.
 
All expectations, guidance and targets regarding future performance and dividend payments should be read together with “Outlook, assumptions and cautionary statements” on pages 59 and 60.
 
If exchange rates were to hold at the closing rates on 25 October 2019 ($1.28/£1, €1.15/£1 and Yen 139/£1) for the rest of 2019, the estimated positive impact on 2019 Sterling turnover growth would be around 2% and if exchange gains or losses were recognised at the same level as in 2018, the estimated positive impact on 2019 Sterling Adjusted EPS growth would be around 4%.
 
 
Results presentation
 
A webcast of the quarterly results presentation hosted by Emma Walmsley, GSK CEO, will be held at 2pm GMT on 30 October 2019. Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.
 
Information available on GSK’s website does not form part of, and is not incorporated by reference into, this Results Announcement.
 
 
Operating performance – Q3 2019
 
Turnover
 
 
Q3 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
 
 
Pharmaceuticals
 
 
4,531
 
7
 
3
Vaccines
 
 
2,308
 
20
 
15
Consumer Healthcare
 
 
2,526
 
30
 
25
 
 
 
 
 
 
 
 
 
 
 
9,365
 
16
 
11
 
 
 
 
 
 
 
 
Corporate and other unallocated turnover
 
 
20
 
 
 
 
 
 
 
 
 
 
 
 
Group turnover
 
 
9,385
 
16
 
11
 
 
 
 
 
 
 
 
Pro-forma growth
 
 
 
 
 
 
6
 
 
 
 
 
 
 
 
 
Group turnover increased 16% AER, 11% CER to £9,385 million in the quarter, with growth delivered by all three businesses, primarily driven by Vaccines and the acquired Pfizer consumer healthcare business to form the new Consumer Healthcare Joint Venture. Pro-forma turnover growth for the Group was 6% CER.
 
Pharmaceuticals sales were up 7% AER, 3% CER with HIV sales of £1,267 million, up 5% AER, flat at CER, as growth in Juluca and Dovato offset declines in Tivicay and Triumeq. Respiratory sales were up 25% AER, 19% CER to £806 million, on growth of Trelegy Ellipta and Nucala. Sales of Established Pharmaceuticals declined 1% AER, 5% CER to £2,223 million including the impact of loss of exclusivity of Advair.
 
Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven by growth in sales of Shingrix. Meningitis and Influenza vaccines also contributed to growth.
 
Consumer Healthcare sales grew 30% AER, 25% CER to £2,526 million, primarily reflecting the acquired Pfizer legacy brands. On a pro-forma basis, turnover grew 3% CER, driven by strong performance in Oral health.
 
Operating profit
Total operating profit was £2,147 million compared with £1,910 million in Q3 2018. Adjusted operating profit was £2,786 million, up 10% AER, 3% CER on a turnover increase of 11% CER. The Adjusted operating margin of 29.7% was down 1.5 percentage points at AER, 2.4 percentage points at CER and down 2.0 percentage points CER on a pro-forma basis.
 
The unwind of the fair value uplift on Consumer Healthcare inventory acquired from Pfizer and increased re-measurement charges on the contingent consideration liabilities were partly offset by lower charges for major restructuring and an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands. GSK now expects the transaction to complete in Q1 2020, subject to legal and regulatory approvals.
 
Operating profit was also impacted by continuing price pressure, including from the loss of exclusivity of Advair, investment in R&D, including a significant increase in Oncology investment, and investments in promotional product support, particularly for new product launches. These were partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and Consumer Healthcare and continued tight control of ongoing costs across all three businesses.
 
Earnings per share
Total earnings per share was 31.4p, compared with 28.8p in Q3 2018. Adjusted EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a 3% CER increase in Adjusted operating profit. The improvement primarily resulted from a reduced tax rate and lower net finance costs partly offset by the higher non-controlling interest allocation of Consumer Healthcare profits.
 
Cash flow
Net cash inflow from operating activities was £2,515 million (Q3 2018: £2,077 million) and free cash flow was £1,939 million (Q3 2018: £1,554 million). The increased free cash flow primarily reflected improved operating profits, a lower seasonal increase in trade receivables and inventory, and reduced dividend payments to non-controlling interests.
 
 
Operating performance – nine months 2019
 
Turnover
 
 
9 months 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
 
 
Pharmaceuticals
 
 
12,996
 
4
 
1
Vaccines
 
 
5,415
 
23
 
19
Consumer Healthcare
 
 
6,424
 
12
 
10
 
 
 
 
 
 
 
 
 
 
 
24,835
 
10
 
7
 
 
 
 
 
 
 
 
Corporate and other unallocated turnover
 
 
20
 
 
 
 
 
 
 
 
 
 
 
 
Group turnover
 
 
24,855
 
10
 
7
 
 
 
 
 
 
 
 
Pro-forma growth
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
 
Group turnover increased 10% AER, 7% CER to £24,855 million in the nine months, with growth delivered by all three businesses. Pro-forma turnover growth for the Group was 5% CER.
 
Pharmaceuticals turnover was £12,996 million, up 4% AER, 1% CER. HIV sales were up 4% AER, 1% CER, to £3,597 million, with growth in Juluca and Dovato partly offset by a decline in Triumeq. Respiratory sales were up 23% AER, 18% CER, to £2,189 million, on growth of Trelegy Ellipta and Nucala. Established Pharmaceuticals sales declined 4% AER, 6% CER to £6,603 million, including the impact of loss of exclusivity of Advair.
 
Vaccines turnover grew 23% AER, 19% CER to £5,415 million, primarily driven by growth in sales of Shingrix. Meningitis and Influenza vaccines also contributed to growth.
 
Consumer Healthcare sales grew 12% AER, 10% CER to £6,424 million. On a pro-forma basis, sales grew 2% CER, driven largely by the International region with double digit growth in India and China.
 
Operating profit
Total operating profit was £5,059 million in the nine months compared with £3,929 million in 2018. Adjusted operating profit was £7,120 million, up 9% AER, 3% CER on a turnover increase of 7% CER. The Adjusted operating margin of 28.6% was down 0.3 percentage points at AER, 1.0 percentage points at CER and down 0.9 percentage points CER on a pro-forma basis. Reduced re-measurement charges on the contingent consideration liabilities and an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other brands were partly offset by increased charges for major restructuring, primarily arising from write-downs in manufacturing sites.
 
Operating profit also benefited from sales growth in all three businesses, particularly Vaccines, a more favourable mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory adjustments in Vaccines and continued tight control of ongoing costs across all three businesses. This was partly offset by continuing price pressure, particularly in Respiratory, including the impact of the loss of exclusivity of Advair, investment in R&D including a significant increase in Oncology investment, and investments in promotional product support, particularly for new launches.
 
Earnings per share
Total earnings per share for the nine months was 67.7p, compared with 49.0p in 2018. Adjusted EPS of 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER, on a 3% CER increase in Adjusted operating profit. The improvement primarily resulted from the lower non-controlling interest allocation of Consumer Healthcare profits, a reduced effective tax rate and an increased share of after tax profits of associates, partly offset by increased net finance costs.
 
Cash flow
Net cash inflow from operating activities was £4,567 million (2018: £4,302 million) and free cash flow was £2,474 million (2018: £2,375 million). The increase primarily reflected improved operating profits, a lower seasonal increase in trade receivables, lower contingent consideration payments and reduced dividend payments to non-controlling interests.
 
R&D pipeline
 
41 new medicines in development, 17 Vaccines
 
Pipeline news flow highlights since Q2 2019:
 
Oncology
 
Zejula (niraparib)
Positive phase III results from the PRIMA study of Zejula in the first line maintenance setting in women with advanced ovarian cancer were presented at the 2019 European Society for Medical Oncology (ESMO) Congress and simultaneously published in The New England Journal of Medicine. Regulatory submissions are on track with US submission expected before end 2019.
Zejula received FDA approval for an expanded indication for the treatment of advanced ovarian, fallopian tube or primary peritoneal cancer patients, who have been treated with three or more prior chemotherapy regimens and whose cancer is associated with homologous recombination deficiency positive status including a BRCA mutation.
The first patient was dosed in the pivotal phase II study (MOONSTONE) evaluating the combination of Zejula and dostarlimab in patients with platinum resistant ovarian cancer.
 
GSK3359609 (ICOS)
Data (INDUCE-1) presented at ESMO 2019 demonstrated promising anti-tumour activity with GSK3359609, an ICOS receptor agonist, in combination with pembrolizumab in head and neck squamous cell carcinoma (HNSCC). These data support initiation of a phase II/III registrational trial with pembrolizumab in first-line recurrent/ metastatic HNSCC (INDUCE-3).
 
Belantamab mafodotin (GSK2857916 BCMA ADC)
Positive headline results from the pivotal DREAMM-2 study for multiple myeloma were announced and will be presented at an upcoming medical congress. Regulatory submissions are on track with US submission expected before end 2019.
 
Dostarlimab (TSR-042)
The first patient was dosed in the pivotal RUBY study of dostarlimab plus chemotherapy versus placebo plus chemotherapy in first line treatment of endometrial cancer.
Final data from the pivotal GARNET study of dostarlimab are in-house. Regulatory submissions are on track with US submission expected before end 2019.
 
GSK3145095 (RIP1k inhibitor)
GSK’095 for pancreatic cancer was terminated as part of ongoing portfolio prioritisation.
 
HIV/Infectious diseases
 
Cabotegravir + rilpivirine
Positive phase III results reported from the ATLAS-2M study of cabotegravir plus rilpivirine administered every eight weeks.
Regulatory application was submitted to the European Medicines Agency for cabotegravir plus rilpivirine, as the first once monthly injectable treatment for HIV.
 
Dovato (dolutegravir + lamivudine)
A supplemental NDA was submitted to the US FDA for the use of Dovato in Virologically Suppressed Adults with HIV-1.
 
GSK3389404/3228836 (HBV ASO)
Option exercised to license Ionis’ antisense medicines for people with chronic hepatitis B virus infection following phase II results.
 
Gepotidacin (GSK2140944)
The first patients were dosed in the two pivotal studies of gepotidacin in uncomplicated urinary tract infection and urogenital gonorrhea.
 
Immuno-inflammation
 
Benlysta (belimumab)
Benlysta received European approval for intravenous use in children with lupus aged five years and older.
 
GSK2831781 (LAG3)
The first patient was dosed in a phase II study of GSK’781 in ulcerative colitis.
 
Respiratory
 
Trelegy Ellipta (FF/UMEC/VI)
A supplemental NDA was submitted to the US FDA seeking an additional indication for the use of Trelegy Ellipta for the treatment of asthma in adults.
 
Nucala (mepolizumab)
Nucala received European approval for self-administration by patients with severe eosinophilic asthma.
Nucala received US FDA approval for use in children as young as six years old who are living with severe eosinophilic asthma.
Results from interim analysis of REALITI-A, a prospective global real-world study, were presented at the 2019 European Respiratory Society Congress and showed Nucala significantly reduces exacerbations in patients with severe eosinophilic asthma.
 
GSK2292767 (PI3Kd inhibitor)
GSK’767 for respiratory diseases was terminated as part of ongoing portfolio prioritisation.
 
Other pharmaceuticals
 
Daprodustat
Japanese New Drug Application was submitted for daprodustat for the treatment of patients with renal anaemia due to chronic kidney disease.
 
Linerixibat (GSK2330672, IBAT)
US FDA granted Orphan Drug Designation for linerixibat for the treatment of cholestatic pruritus in primary biliary cholangitis.
 
Vaccines
 
TB vaccine
The New England Journal of Medicine published the final 3-year results of a phase IIb study for candidate TB vaccine M72/AS01E. Results demonstrate overall efficacy of 50% over the duration of at least three years after vaccination.
 
Ebola vaccines
Vaccines candidates against Ebola and Marburg viruses have been transferred to the Sabin Vaccine Institute for clinical development.
 
C. Difficile vaccine
First time in human trials were started for a candidate vaccine for the prevention of Clostridium difficile (C. difficile) infection using the AS01 adjuvant.
 
SAM (rabies model) vaccine
First time in human trials were started for self-amplifying mRNA platform technology with a rabies model antigen.
 
 
Contents
Page
 
 
Total and Adjusted results
9
Financial performance – Q3 2019
11
Financial performance – nine months ended 30 September 2019
24
Cash generation
38
Returns to shareholders
39
 
 
Income statements
41
Statement of comprehensive income – three months ended 30 September 2019
42
Statement of comprehensive income – nine months ended 30 September 2019
43
Pharmaceuticals turnover – three months ended 30 September 2019
44
Pharmaceuticals turnover – nine months ended 30 September 2019
45
Vaccines turnover – three months ended 30 September 2019
46
Vaccines turnover – nine months ended 30 September 2019
47
Balance sheet
48
Statement of changes in equity
49
Cash flow statement – nine months ended 30 September 2019
50
Segment information
51
Legal matters
53
Additional information
54
Reconciliation of cash flow to movements in net debt
57
Net debt analysis
57
Free cash flow reconciliation
57
Reporting definitions
58
Outlook, assumptions and cautionary statements
59
Independent review report
61
 
 
Contacts
 
GSK – one of the world’s leading research-based pharmaceutical and healthcare companies – is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For further information please visit www.gsk.com.
 
 
 
GSK enquiries:
 
 
 
UK Media enquiries:
Simon Steel
+44 (0) 20 8047 5502
(London)
 
Tim Foley
+44 (0) 20 8047 5502
(London)
 
Mary Hinks-Edwards
+44 (0) 20 8047 5502
(London)
 
 
 
 
US Media enquiries:
Kristen Neese
+1 215 751 3335
(Philadelphia)
 
 
 
 
Analyst/Investor enquiries:
Sarah Elton-Farr
+44 (0) 20 8047 5194
(London)
 
James Dodwell
+44 (0) 20 8047 2406
(London)
 
Danielle Smith
+44 (0) 20 8047 7562
(London)
 
Jeff McLaughlin
+1 215 751 7002
(Philadelphia)
 
 
Registered in England & Wales:
No. 3888792
 
Registered Office:
980 Great West Road
Brentford, Middlesex
TW8 9GS
 
 
Total and Adjusted results
 
Total reported results represent the Group’s overall performance.
 
GSK also uses a number of adjusted, non-IFRS, measures to report the performance of its business. Adjusted results and other non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS. Adjusted results are defined below and pro-forma growth and other non-IFRS measures are defined on page 58.
 
GSK believes that Adjusted results, when considered together with Total results, provide investors, analysts and other stakeholders with helpful complementary information to understand better the financial performance and position of the Group from period to period, and allow the Group’s performance to be more easily compared against the majority of its peer companies. These measures are also used by management for planning and reporting purposes. They may not be directly comparable with similarly described measures used by other companies.
 
GSK encourages investors and analysts not to rely on any single financial measure but to review GSK’s quarterly results announcements, including the financial statements and notes, in their entirety.
 
GSK is committed to continuously improving its financial reporting, in line with evolving regulatory requirements and best practice and has made a number of changes in recent years. In line with this practice, GSK expects to continue to review its reporting framework.
 
Adjusted results exclude the following items from Total results, together with the tax effects of all of these items:
 
amortisation of intangible assets (excluding computer software)
impairment of intangible assets (excluding computer software) and goodwill
Major restructuring costs, which include impairments of tangible assets and computer software, (under specific Board approved programmes that are structural, of a significant scale and where the costs of individual or related projects exceed £25 million), including integration costs following material acquisitions
transaction-related accounting or other adjustments related to significant acquisitions
proceeds and costs of disposal of associates, products and businesses; significant legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations; other operating income other than royalty income, and other items
 
Costs for all other ordinary course smaller scale restructuring and legal charges and expenses are retained within both Total and Adjusted results.
 
As Adjusted results include the benefits of Major restructuring programmes but exclude significant costs (such as significant legal, major restructuring and transaction items) they should not be regarded as a complete picture of the Group’s financial performance, which is presented in Total results. The exclusion of other Adjusting items may result in Adjusted earnings being materially higher or lower than Total earnings. In particular, when significant impairments, restructuring charges and legal costs are excluded, Adjusted earnings will be higher than Total earnings.
 
GSK has undertaken a number of Major restructuring programmes in recent years in response to significant changes in the Group’s trading environment or overall strategy, or following material acquisitions. Costs, both cash and non-cash, of these programmes are provided for as individual elements are approved and meet the accounting recognition criteria. As a result, charges may be incurred over a number of years following the initiation of a Major restructuring programme.
 
Significant legal charges and expenses are those arising from the settlement of litigation or government investigations that are not in the normal course and materially larger than more regularly occurring individual matters. They also include certain major legacy matters.
 
Reconciliations between Total and Adjusted results, providing further information on the key Adjusting items, are set out on pages 20, 21, 34 and 35.
 
GSK provides earnings guidance to the investor community on the basis of Adjusted results. This is in line with peer companies and expectations of the investor community, supporting easier comparison of the Group’s performance with its peers. GSK is not able to give guidance for Total results as it cannot reliably forecast certain material elements of the Total results, particularly the future fair value movements on contingent consideration and put options that can and have given rise to significant adjustments driven by external factors such as currency and other movements in capital markets.
 
Pro-forma growth
The acquisition of the Pfizer consumer healthcare business completed on 31 July 2019 and so GSK’s reported results include two months of results of the former Pfizer consumer healthcare business from 1 August 2019.
 
The Group has presented pro-forma growth rates at CER for turnover, Adjusted operating profit and operating profit by business taking account of this transaction. Pro-forma growth rates for the quarter are calculated comparing reported results for Q3 2019, calculated applying the exchange rates used in the comparative period, with the results for Q3 2018 adjusted to include the equivalent two months of results of the former Pfizer consumer healthcare business during Q3 2018, as consolidated (in US$) and included in Pfizer’s US GAAP results. Similarly, pro-forma growth rates at CER for the nine months to 30 September 2019 are calculated comparing reported results for the nine months to 30 September 2019, calculated applying the exchange rates used in the comparative period, with the results for the nine months to 30 September 2018, adjusted to include the equivalent two months of results of the former Pfizer consumer healthcare business, as consolidated (in US$) and included in Pfizer’s US GAAP results.
 
ViiV Healthcare
ViiV Healthcare is a subsidiary of the Group and 100% of its operating results (turnover, operating profit, profit after tax) are included within the Group income statement.
 
Earnings are allocated to the three shareholders of ViiV Healthcare on the basis of their respective equity shareholdings (GSK 78.3%, Pfizer 11.7% and Shionogi 10%) and their entitlement to preferential dividends, which are determined by the performance of certain products that each shareholder contributed. As the relative performance of these products changes over time, the proportion of the overall earnings allocated to each shareholder also changes. In particular, the increasing sales of dolutegravir-containing products have a favourable impact on the proportion of the preferential dividends that is allocated to GSK. Adjusting items are allocated to shareholders based on their equity interests. GSK was entitled to approximately 85% of the Total earnings and 82% of the Adjusted earnings of ViiV Healthcare for 2018.
 
As consideration for the acquisition of Shionogi’s interest in the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10% equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay additional future cash consideration to Shionogi, contingent on the future sales performance of the products being developed by that joint venture, principally dolutegravir. Under IFRS 3 ‘Business combinations’, GSK was required to provide for the estimated fair value of this contingent consideration at the time of acquisition and is required to update the liability to the latest estimate of fair value at each subsequent period end. The liability for the contingent consideration recognised in the balance sheet at the date of acquisition was £659 million. Subsequent re-measurements are reflected within other operating income/expense and within Adjusting items in the income statement in each period. At 30 September 2019, the liability, which is discounted at 8.5%, stood at £5,713 million, on a post-tax basis.
 
Cash payments to settle the contingent consideration are made to Shionogi by ViiV Healthcare each quarter, based on the actual sales performance of the relevant products in the previous quarter. These payments reduce the balance sheet liability and hence are not recorded in the income statement. The cash payments made to Shionogi by ViiV Healthcare in the nine months to September 2019 were £645 million.
 
Because the liability is required to be recorded at the fair value of estimated future payments, there is a significant timing difference between the charges that are recorded in the Total income statement to reflect movements in the fair value of the liability and the actual cash payments made to settle the liability.
 
Further explanation of the acquisition-related arrangements with ViiV Healthcare are set out on pages 41 and 42 of the Annual Report 2018.
 
 
Financial performance – Q3 2019
 
Total results
 
The Total results for the Group are set out below.
 
 
Q3 2019
£m
 
Q3 2018
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
 
 
Turnover
9,385 
 
8,092 
 
16
 
11 
 
 
 
 
 
 
 
 
Cost of sales
(3,245)
 
(2,636)
 
23
 
21 
 
 
 
 
 
 
 
 
Gross profit
6,140 
 
5,456 
 
13
 
 
 
 
 
 
 
 
 
Selling, general and administration
(2,892)
 
(2,527)
 
14
 
11 
Research and development
(1,206)
 
(988)
 
22
 
18 
Royalty income
118 
 
94 
 
26
 
24 
Other operating expense
(13)
 
(125)
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit
2,147 
 
1,910 
 
12
 
 
 
 
 
 
 
 
 
Finance income
32 
 
10 
 
 
 
 
Finance expense
(245)
 
(233)
 
 
 
 
Profit on disposal of associates
- 
 
 
 
 
 
Share of after tax profits of associates and joint ventures
17 
 
15 
 
 
 
 
 
 
 
 
 
 
 
 
Profit before taxation
1,951 
 
1,705 
 
14
 
 
 
 
 
 
 
 
 
Taxation
(235)
 
(193)
 
 
 
 
Tax rate %
12.0%
 
11.3%
 
 
 
 
 
 
 
 
 
 
 
 
Profit after taxation
1,716 
 
1,512 
 
13
 
 
 
 
 
 
 
 
 
Profit attributable to non-controlling interests
164 
 
94 
 
 
 
 
Profit attributable to shareholders
1,552 
 
1,418 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,716 
 
1,512 
 
13
 
 
 
 
 
 
 
 
 
Earnings per share
31.4p
 
28.8p
 
9
 
(1)
 
 
 
 
 
 
 
 
 
 
Adjusted results
 
The Adjusted results for the Group are set out below. Reconciliations between Total results and Adjusted results for Q3 2019 and Q3 2018 are set out on pages 20 and 21.
 
 
Q3 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
% of
turnover
 
Growth
£%
 
Reported
growth
CER%
 
Pro-forma
growth
CER%
 
 
 
 
 
 
 
 
 
 
Turnover
9,385 
 
100 
 
16 
 
11 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(2,785)
 
(29.7)
 
17 
 
15 
 
8 
Selling, general and administration
(2,768)
 
(29.5)
 
20 
 
16 
 
8 
Research and development
(1,164)
 
(12.4)
 
21 
 
17 
 
15 
Royalty income
118 
 
1.3 
 
26 
 
24 
 
25 
 
 
 
 
 
 
 
 
 
 
Adjusted operating profit
2,786 
 
29.7 
 
10 
 
 
(1)
 
 
 
 
 
 
 
 
 
 
Adjusted profit before tax
2,597 
 
 
 
12 
 
4 
 
 
Adjusted profit after tax
2,186 
 
 
 
16 
 
8 
 
 
Adjusted profit attributable to shareholders
1,911 
 
 
 
9 
 
1 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per share
38.6 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit by business
Q3 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
% of
turnover
 
Growth
£%
 
Reported
growth
CER%
 
Pro-forma
growth
CER%
 
 
 
 
 
 
 
 
 
 
Pharmaceuticals
1,986 
 
43.8 
 
(2)
 
(7)
 
(7)
Pharmaceuticals R&D*
(893)
 
 
 
34 
 
28 
 
28 
 
 
 
 
 
 
 
 
 
 
Total Pharmaceuticals
1,093 
 
24.1 
 
(20)
 
(24)
 
(24)
Vaccines
1,162 
 
50.3 
 
41 
 
30 
 
30 
Consumer Healthcare
613 
 
24.3 
 
43 
 
34 
 
8 
 
 
 
 
 
 
 
 
 
 
 
2,868 
 
30.6 
 
10 
 
 
(1)
Corporate & other unallocated costs
(82)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted operating profit
2,786 
 
29.7 
 
10 
 
3 
 
(1)
 
 
 
 
 
 
 
 
 
 
 
*
Operating profit of Pharmaceuticals R&D segment, which is the responsibility of the Chief Scientific Officer and President, R&D. It excludes ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals segment.
 
 
Turnover
 
Pharmaceuticals turnover
 
 
Q3 2019
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
Respiratory
806
 
25 
 
19 
HIV
1,267
 
 
Immuno-inflammation
171
 
40 
 
33 
Oncology
64
 
 
Established Pharmaceuticals
2,223
 
(1)
 
(5)
 
 
 
 
 
 
 
4,531
 
 
 
 
 
 
 
 
US
1,972
 
 
(2)
Europe
1,040
 
 
International
1,519
 
10 
 
 
 
 
 
 
 
 
4,531
 
 
 
 
 
 
 
 
 
Pharmaceuticals turnover in the quarter was £4,531 million, up 7% AER, 3% CER. Respiratory sales were up 25% AER, 19% CER to £806 million, on growth of Trelegy Ellipta and Nucala. HIV sales of £1,267 million were up 5% AER but flat at CER, with growth in Juluca and Dovato offset by declines in Tivicay and Triumeq. Sales of Established Pharmaceuticals declined 1% AER, 5% CER to £2,223 million, with lower Advair sales offset by favourable prior period payer rebate adjustments and higher Ventolin authorised generic sales in the US, and a European Relenza tender.
 
In the US, sales grew 4% AER, but declined 2% CER. Excluding Advair and Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market, growth was 21% AER, 14% CER. Continued growth of Nucala, Trelegy Ellipta and Benlysta was offset by the decline in Established Products, including the loss of exclusivity of Advair. In Europe, sales grew 9% AER, 9% CER, with strong growth in Respiratory and from Zejula. International grew 10% AER, 5% CER, with growth in all therapy areas.
 
Respiratory
Total Respiratory sales were up 25% AER, 19% CER, with strong growth in Europe and International, which both saw growth in Ellipta products, including Relvar/Breo and Trelegy, and Nucala, up 29% AER and CER in Europe and 82% AER, 65% CER in International. In the US, Trelegy Ellipta and Nucala growth was partly offset by a decline in Relvar/Breo Ellipta as a result of post-generic ICS/LABA price pressure.
 
Sales of Nucala were £203 million in the quarter and grew 40% AER, 33% CER, continuing to benefit from the global rollout of the product. US sales of Nucala grew 37% AER, 29% CER to £119 million.
 
Sales of Ellipta products were up 21% AER, 15% CER to £603 million driven by growth in Europe and International regions. In the US, sales grew 12% AER, 5% CER, reflecting growth in Trelegy Ellipta and Anoro Ellipta, partly offset by continued competitive pricing pressures for ICS/LABAs. In Europe, Ellipta product sales grew 34% AER, 33% CER. Sales of Trelegy Ellipta contributed £139 million globally in the quarter, driven by an increase in US market share.
 
Relvar/Breo Ellipta sales were down 3% AER, 8% CER. In the US, Relvar/Breo Ellipta declined 26% AER, 32% CER impacted by US competitive pricing pressures and the impact of generic Advair on the US ICS/LABA market. In Europe and International, Relvar/Breo Ellipta continued to grow, up 20% AER, 19% CER and 25% AER, 22% CER respectively.
 
HIV
HIV sales of £1,267 million grew 5% AER but were flat at CER in the quarter. The dolutegravir franchise grew 6% AER, 2% CER, delivering sales of £1,211 million in the quarter. The remaining portfolio, with sales of £56 million (4% of total HIV sales), declined 21% AER, 23% CER and reduced the overall growth of total HIV sales by two percentage points in the quarter.
 
Sales of dolutegravir products were £1,211 million in the quarter, with Triumeq and Tivicay delivering sales of £651 million and £441 million, respectively. The two-drug regimens, Juluca and Dovato, delivered sales of £119 million in the quarter, with combined growth more than offsetting the decline in the three-drug regimen, Triumeq, as the business transitions to the new portfolio.
 
In the US, following the launch of Dovato in April 2019, combined sales of the two-drug regimens were £98 million. Total dolutegravir sales grew 6% AER but were flat at CER, reflecting a year-on-year share decline as the business transitions to the new two-drug portfolio, offset by a net price benefit. In Europe, Dovato was launched in the quarter and, combined with Juluca, recorded sales of £19 million. Total dolutegravir sales grew 3% AER, 3% CER, driven by Tivicay and our two-drug regimens. International continued to grow strongly with total dolutegravir sales growth of 13% AER, 9% CER, driven by Triumeq.
 
Oncology
Sales of Zejula, the newly acquired PARP inhibitor asset, were £64 million in the quarter, comprising £38 million in the US and £26 million in Europe.
 
Immuno-inflammation
Sales of Benlysta in the quarter were up 42% AER, 35% CER to £172 million, including sales of the sub-cutaneous formulation of £78 million. In the US, Benlysta grew 39% AER, 29% CER to £150 million.
 
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the quarter were £2,223 million, down 1% AER, 5% CER.
 
Established Respiratory products declined 8% AER, 12% CER to £939 million. Advair in the US experienced its second full quarter of generic competition, resulting in a 62% AER, 64% CER decline. Also in the US, Ventolin benefited from strong uptake of an authorised generic version launched in the year. In Europe, Seretide sales were down 8% AER, 9% CER to £121 million, reflecting continued competition from generic products and the transition of the Respiratory portfolio to newer products. In International, sales of Seretide were up 1% AER but down 2% CER.
 
The remainder of the Established Pharmaceuticals portfolio grew by 5% AER, 1% CER to £1,284 million with Lamictal down 1% AER, 4% CER to £147 million on generic competition in the US and International, more than offset by growth in Dermatology and Augmentin in the quarter, and a European Relenza tender.
 
 
Vaccines turnover
 
 
Q3 2019
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
Meningitis
371
 
13 
 
Influenza
371
 
22 
 
15 
Shingles
535
 
87 
 
76 
Established Vaccines
1,031
 
3 
 
(1)
 
 
 
 
 
 
 
2,308
 
20 
 
15 
 
 
 
 
 
 
US
1,441
 
36 
 
28 
Europe
396
 
(1)
 
(2)
International
471
 
2 
 
- 
 
 
 
 
 
 
 
2,308
 
20 
 
15 
 
 
 
 
 
 
 
Vaccines turnover grew 20% AER, 15% CER to £2,308 million, primarily driven by growth in sales of Shingrix. Meningitis vaccines also contributed to growth, mainly due to Bexsero demand across all regions. Influenza vaccines sales grew 22% AER, 15% CER to £371 million, primarily due to share gains, phasing and the favourable impact of a prior-year returns provision reversal in the US. Established Vaccines grew 3% AER but declined 1% CER to £1,031 million, reflecting lower demand for Cervarix in International and supply constraints in MMRV vaccines, partly offset by favourable Infanrix, Pediarix US CDC stockpile movements and strong demand and favourable phasing of Boostrix in International.
 
Meningitis
Meningitis sales grew 13% AER, 9% CER to £371 million. Bexsero sales grew 23% AER, 19% CER to £255 million, driven by strong demand across all regions and share gains in the US. Menveo grew 4% AER but declined 1% CER, primarily reflecting lower demand in International.
 
Influenza
Fluarix/FluLaval sales were up 22% AER, 15% CER to £371 million, primarily due to share gains, phasing and the favourable impact of a prior-year returns provision reversal in the US.
 
Shingles
Shingrix recorded sales of £535 million in the quarter, driven by continued strong uptake in the US. Germany and Canada also contributed to growth.
 
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 22% AER, 17% CER. Infanrix, Pediarix sales were up 24% AER, 19% CER to £199 million, reflecting favourable year-on-year CDC stockpile movements and increased channel inventory in the US, partly offset by competitive pressures in Europe.
 
Boostrix sales grew 19% AER, 15% CER to £187 million, mainly due to strong demand and favourable phasing in International, together with share gains and higher demand in the US.
 
Hepatitis vaccines grew 1% AER but declined 2% CER to £216 million, primarily due to the comparison with a strong Q3 2018, which benefited from a competitor supply shortage, and lower demand in Europe.
 
Rotarix sales were up 10% AER, 7% CER to £167 million, reflecting stronger demand and favourable phasing in International.
 
Synflorix sales declined 3% AER, 4% CER to £116 million due to lower demand in International.
 
MMRV vaccines sales declined 30% AER, 31% CER to £57 million, mainly driven by supply constraints in Europe and International.
 
Cervarix sales were down 73% AER, 73% CER to £15 million, mainly reflecting competitive pressure in China and lower demand elsewhere in International.
 
 
Consumer Healthcare turnover
 
 
 
 
Q3 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
 
 
Wellness
 
 
1,277
 
26
 
22
Oral health
 
 
709
 
14
 
10
Nutrition
 
 
382
 
>100
 
>100
Skin health
 
 
158
 
14
 
9
 
 
 
 
 
 
 
 
 
 
 
2,526
 
30
 
25
 
 
 
 
 
 
 
 
US
 
 
730
 
62
 
52
Europe
 
 
658
 
10
 
10
International
 
 
1,138
 
27
 
23
 
 
 
 
 
 
 
 
 
 
 
2,526
 
30
 
25
 
 
 
 
 
 
 
 
Pro-forma growth
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
Consumer Healthcare turnover grew 30% AER, 25% CER in the quarter to £2,526 million. On a pro-forma basis, sales grew 3% CER, driven by strong performance in the Oral health category, partly offset by a decline in the Skin health category.
 
Divestments and the phasing out of low margin contract manufacturing had a negative impact of approximately one percentage point on pro-forma growth in the quarter.
 
Sales of the Consumer Healthcare business include nine weeks of legacy Pfizer brand sales arising after the creation of the Joint Venture. The legacy Pfizer brands have been included in the existing categories and geographic regions used to report Consumer Healthcare sales. GSK expects to revise this category structure for reporting from Q1 2020 onwards.
 
Wellness
Wellness sales grew 26% AER, 22% CER to £1,277 million in the quarter. On a pro-forma basis, sales grew in low single digits, with strong performance in Pain relief partly offset by a decline in Respiratory and the phasing out of low margin contract manufacturing. In the Pain relief category, Panadol continued to perform strongly, particularly in the Middle East and Africa, and benefited from 2018 regulatory and distribution changes. Voltaren grew in mid-single digits, while Advil was flat, reflecting a partial recovery from historical supply issues.
 
Oral health
Oral health sales grew 14% AER, 10% CER to £709 million. Sensodyne delivered double-digit, broad based growth, led by the US, with some benefit from prior-year destocking in China. Double-digit growth in Gum health was achieved, while Denture care grew in mid-single digits. Oral health growth was also impacted by a decline in non-strategic brands.
 
Nutrition
Nutrition sales more than doubled to £382 million, largely due to the inclusion of the Pfizer vitamins, minerals and supplements portfolio. On a pro-forma basis, sales grew in low single digits, reflecting strong performances of Horlicks and Caltrate, partly offset by a decline in Centrum.
 
Skin health
Skin health sales grew 14% AER, 9% CER to £158 million, largely due to the addition of Chapstick from the Pfizer portfolio. On a pro-forma basis, sales declined in mid-single digits, largely due to divestments of small tail brands in the US and UK, which had a negative impact on pro-forma growth of the category of six percentage points.
 
 
Operating performance
 
Cost of sales
Total cost of sales as a percentage of turnover was 34.6%, 2.0 percentage points higher at AER and 2.8 percentage points higher in CER terms compared with Q3 2018. This reflected the unwind of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer as well as an increase in the costs of manufacturing restructuring programmes, primarily as a result of write downs in a number of manufacturing sites, and increased amortisation of intangible assets.
 
Excluding these and other Adjusting items, Adjusted cost of sales as a percentage of turnover was 29.7%, 0.2 percentage points higher at AER, and 0.9 percentage points higher at CER compared with Q3 2018. On a pro-forma basis, Adjusted cost of sales as a percentage of turnover was 29.7%, 0.5% percentage points higher at CER compared with Q3 2018. The increase reflected continued adverse pricing pressure in Pharmaceuticals, particularly in Respiratory, an unfavourable product mix in Pharmaceuticals and a non-restructuring related write down in a manufacturing site. This was partly offset by a more favourable product mix in Vaccines, primarily due to the growth of Shingrix in the US, and favourable year-on-year inventory adjustments.
 
Selling, general and administration
Total SG&A costs as a percentage of turnover were 30.8%, 0.4 percentage points lower at AER and 0.2 percentage points lower on a CER basis compared with Q3 2018. This included reduced major restructuring costs partly offset by acquisition costs related to the Consumer Healthcare Joint Venture with Pfizer.
 
Excluding these and other Adjusting items, Adjusted SG&A costs as a percentage of turnover were 29.5%, 0.9 percentage points higher at AER than in Q3 2018 and 1.1 percentage points higher on a CER basis. On a pro-forma basis, Adjusted SG&A costs as a percentage of turnover were 29.5%, 0.7 percentage points higher at CER compared with Q3 2018. The growth in Adjusted SG&A costs of 20% AER, 16% CER, (8% CER pro-forma) reflected increased investment resulting from the acquisition of Tesaro and in promotional product support, particularly for new launches in Respiratory, HIV and Vaccines, as well as increased costs for a number of legal settlements in the quarter. This was partly offset by the continuing benefit of restructuring in Pharmaceuticals and the tight control of ongoing costs, particularly in non-promotional spending across all three businesses.
 
Research and development
Total R&D expenditure was £1,206 million (12.9 % of turnover), up 22% AER, 18% CER. Adjusted R&D expenditure was £1,164 million (12.4% of turnover), 21% higher at AER, 17% higher at CER than Q3 2018. On a pro-forma basis, Adjusted R&D expenditure was 15% higher at CER compared with Q3 2018.
 
Pharmaceuticals R&D expenditure was £899 million, up 24% AER, 19% CER, reflecting a significant increase in Oncology study and clinical trial material investments including on the assets from the Tesaro acquisition, primarily Zejula and TSR-042, and a number of other mid and late-stage programmes, including BCMA, NY-ESO and ICOS, as well as increased spending on the progression of key assets such as aGM-CSF for rheumatoid arthritis. This was partly offset by a favourable comparison with Q3 2018, which included a provision for costs payable to a third party relating to the use of a Priority Review Voucher for Dovato and other projects that were terminated as part of the R&D prioritisation at the end of 2018, including danirixin and nemiralisib. R&D expenditure in Vaccines and Consumer Healthcare was £191 million and £74 million, respectively.
 
Royalty income
Royalty income was £118 million (Q3 2018: £94 million), up 26% AER, 24% CER, primarily reflecting increased royalties on sales of Gardasil.
 
Other operating expense
Net other operating expense of £13 million (Q3 2018: £125 million) primarily reflected accounting charges of £305 million (Q3 2018: £248 million) arising from the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
 
This included a re-measurement charge of £255 million (Q3 2018: £214 million) for the contingent consideration liability due to Shionogi, primarily arising from changes in exchange rate assumptions and the unwind of the discount. These accounting charges were partly offset by an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands of £295 million in the quarter. The cumulative increase in value since the signing of the proposed transaction was £345 million.
 
Operating profit
Total operating profit was £2,147 million in Q3 2019 compared with £1,910 million in Q3 2018. The unwind of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer as well as increased re-measurement charges on the contingent consideration liabilities and reduced profit on disposals were partly offset by an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands and reduced restructuring costs.
 
Excluding these and other Adjusting items, Adjusted operating profit was £2,786 million, 10% higher than Q3 2018 at AER and 3% higher at CER on a turnover increase of 11% CER. The Adjusted operating margin of 29.7% was 1.5 percentage points lower at AER, 2.4 percentage points lower on a CER basis than in Q3 2018. On a pro-forma basis, Adjusted operating profit was 1% lower at CER on a turnover increase of 6% CER. The Adjusted pro-forma operating margin of 29.7% was 2.0 percentage points lower on a CER basis than in Q3 2018.
 
The reduction in Adjusted operating profit primarily reflected continuing price pressure, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D, including a significant increase in Oncology investment, partly on the assets from the Tesaro acquisition, investments in promotional product support, particularly for new launches in Vaccines, HIV and Respiratory as well as increased costs for a number of legal settlements in the quarter. This was partly offset by the benefit from sales growth, particularly in Vaccines, a more favourable mix in Vaccines and continued tight control of ongoing costs across all three businesses.
 
Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in the quarter amounted to £217 million (Q3 2018: £213 million). This included cash payments made to Shionogi of £206 million (Q3 2018: £208 million).
 
Operating profit by business
Pharmaceuticals operating profit was £1,093 million, down 20% AER, 24% CER on a turnover increase of 3% CER. The operating margin of 24.1% was 8.1 percentage points lower at AER than in Q3 2018 and 8.5 percentage points lower on a CER basis. This primarily reflected the continued impact of lower prices, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, an unfavourable product mix, primarily as a result of the growth in some lower margin established products and a non-restructuring related write down in a manufacturing site together with a significant increase in Oncology R&D investment and investment in new product support and targeted priority markets as well as increased costs for a number of legal settlements in the quarter. This was partly offset by continued benefit of restructuring and tight control of ongoing costs and the benefits of re-prioritisation of the R&D portfolio.
 
Vaccines operating profit was £1,162 million, 41% higher than Q3 2018 at AER and 30% higher at CER on a turnover increase of 15% CER. The operating margin of 50.3% was 7.4 percentage points higher than in Q3 2018 at AER and 5.7 percentage points higher on a CER basis. This was primarily driven by enhanced operating leverage from strong sales growth, particularly Shingrix in the US, improved product mix, favourable year-on-year inventory adjustments and higher royalty income.
 
Consumer Healthcare operating profit was £613 million, up 43% AER, 34% CER on a turnover increase of 25% CER. On a pro-forma basis operating profit of £613 million was up 8% CER on a turnover increase of 3% CER. The operating margin of 24.3% was 2.2 percentage points higher at AER and 1.6 percentage points higher on a CER basis. The pro-forma operating margin of 24.3% was 1.2 percentage points higher on a CER basis than in Q3 2018. This primarily reflected continued manufacturing restructuring savings, improved growth from higher margin power brands, which included some seasonal sell-ins, and tight control of promotional and other operating expenses.
 
Net finance costs
Total net finance costs were £213 million compared with £223 million in Q3 2018. Adjusted net finance costs were £206 million compared with £221 million in Q3 2018. The decrease primarily reflected a favourable comparison with Q3 2018, which included interest of £23 million on an historic tax settlement, together with a fair value gain on interest rate swaps in Q3 2019, partly offset by higher debt levels reflecting the acquisition of Tesaro in January 2019. Following the introduction of IFRS 16, ‘Leases’, finance costs included an unwind of the discount on the lease liability of £9 million in the quarter.
 
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was £17 million (Q3 2018: £15 million).
 
Taxation
The charge of £235 million represented an effective tax rate on Total results of 12.0% (Q3 2018: 11.3%) and reflected the different tax effects of the various Adjusting items, including the non-taxable gain arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands. Tax on Adjusted profit amounted to £411 million and represented an effective Adjusted tax rate of 15.8% (Q3 2018: 18.6%), reflecting the impact of the settlement of a number of open issues with tax authorities.
 
Issues related to taxation are described in Note 14, ‘Taxation’ in the Annual Report 2018. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.
 
Non-controlling interests
The allocation of Total earnings to non-controlling interests amounted to £164 million (Q3 2018: £94 million). The increase was primarily due to the allocation of Pfizer’s interest in the profits of the Consumer Healthcare Joint Venture (£47 million), an increased allocation of ViiV Healthcare profits to £86 million (Q3 2018: £78 million) including charges for movements in contingent consideration liabilities and higher net profits in some of the Group’s other entities with non-controlling interests.
 
The allocation of Adjusted earnings to non-controlling interests amounted to £275 million (Q3 2018: £141 million). The increase in allocation was primarily due to the allocation of Pfizer’s interest in the profits of the Consumer Healthcare Joint Venture (£103 million), an increased allocation of ViiV Healthcare profits of £141 million (Q3 2018: £125 million) and higher net profits in some of the Group’s other entities with non-controlling interests.
 
Earnings per share
Total earnings per share was 31.4p, compared with 28.8p in Q3 2018. The increase in earnings per share primarily reflected an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands, a reduced effective tax rate and reduced restructuring costs.
 
Adjusted EPS of 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER, on a 3% CER increase in Adjusted operating profit. This reflected a reduced effective tax rate and reduced net finance costs partly offset by an increased non-controlling interest allocation of Consumer Healthcare profits following the creation of the new Consumer Healthcare Joint Venture in Q3 2019.
 
Currency impact on Q3 2019 results
The Q3 2019 results are based on average exchange rates, principally £1/$1.23, £1/€1.11 and £1/Yen 133. Comparative exchange rates are given on page 55. The period-end exchange rates were £1/$1.23, £1/€1.13 and £1/Yen 133.
 
In the quarter, turnover increased 16% AER, 11% CER. Total EPS was 31.4p compared with 28.8p in Q3 2018. Adjusted EPS was 38.6p compared with 35.5p in Q3 2018, up 9% AER, 1% CER. The positive currency impact primarily reflected the weakness of Sterling, particularly against the US$ and Yen, partly offset by weakness in emerging market currencies, relative to Q3 2018. Exchange gains or losses on the settlement of intercompany transactions had a negligible impact on the positive currency impact of eight percentage points on Adjusted EPS.
 
 
Adjusting items
The reconciliations between Total results and Adjusted results for Q3 2019 and Q3 2018 are set out below.
 
Three months ended 30 September 2019
 
 
Total
results
£m
Intangible
amort-
isation
£m
Intangible
impair-
ment
£m
Major
restruct-
uring
£m
Transaction-
related
£m
Divestments,
significant
legal and
other items
£m
Adjusted
results
£m
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Turnover
9,385 
 
 
 
 
 
9,385 
Cost of sales
(3,245)
191 
10 
108 
151 
 
(2,785)
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Gross profit
6,140 
191 
10 
108 
151 
 
6,600
 
 
 
 
 
 
 
 
Selling, general and administration
(2,892)
 
(1)
77 
30 
18 
(2,768)
Research and development
(1,206)
14 
17 
12 
 
(1)
(1,164)
Royalty income
118 
 
 
 
 
 
118 
Other operating (expense)/income
(13)
 
 
2 
300 
(289)
- 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Operating profit
2,147 
205 
26 
199 
481 
(272)
2,786 
 
 
 
 
 
 
 
 
Net finance costs
(213)
 
 
3 
 
4 
(206)
Share of after tax profits of
  associates and joint ventures
17 
 
 
 
 
 
17 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit before taxation
1,951 
205 
26 
202 
481 
(268)
2,597 
 
 
 
 
 
 
 
 
Taxation
(235)
(39)
(6)
(33)
(86)
(12)
(411)
Tax rate %
12.0%
 
 
 
 
 
15.8%
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit after taxation
1,716 
166 
20 
169 
395 
(280)
2,186 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit attributable to
  non-controlling interests
164 
 
 
 
111 
 
275 
 
 
 
 
 
 
 
 
Profit attributable to
  shareholders
1,552 
166 
20 
169 
284 
(280)
1,911 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
 
 
 
 
 
 
 
 
Earnings per share
31.4p
3.4p
0.4p
3.4p
5.7p
(5.7)p
38.6p
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares (millions)
4,951 
 
 
 
 
 
4,951 
 
––––––––––––
 
 
 
 
 
––––––––––––
 
 
Three months ended 30 September 2018
 
 
Total
results
£m
Intangible
amort-
isation
£m
Intangible
impair-
ment
£m
Major
restruct-
uring
£m
Transaction-
related
£m
Divestments,
significant
legal and
other items
£m
Adjusted
results
£m
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Turnover
8,092 
 
 
 
 
 
8,092 
Cost of sales
(2,636)
133 
41 
69 
5 
 
(2,388)
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Gross profit
5,456 
133 
41 
69 
5 
 
5,704 
 
 
 
 
 
 
 
 
Selling, general and administration
(2,527)
 
 
209 
(9)
14 
(2,313)
Research and development
(988)
10 
8 
4 
 
5 
(961)
Royalty income
94 
 
 
 
 
 
94 
Other operating (expense)/income
(125)
 
 
1 
251 
(127)
- 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Operating profit
1,910 
143 
49 
283 
247 
(108)
2,524 
 
 
 
 
 
 
 
 
Net finance costs
(233)
 
 
 
 
2 
(221)
Profit on disposal of associates
3 
 
 
 
 
(3)
- 
Share of after tax profits of
  associates and joint ventures
15 
 
 
 
 
 
15 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit before taxation
1,705 
143 
49 
283 
247 
(109)
2,318 
 
 
 
 
 
 
 
 
Taxation
(193)
(29)
(6)
(67)
(24)
(111)
(430)
Tax rate %
11.3%
 
 
 
 
 
18.6%
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit after taxation
1,512 
114 
43 
216 
223 
(220)
1,888 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit attributable to
  non-controlling interests
94 
 
 
 
47 
 
141 
 
 
 
 
 
 
 
 
Profit attributable to
  shareholders
1,418 
114 
43 
216 
176 
(220)
1,747 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
 
 
 
 
 
 
 
 
Earnings per share
28.8p
2.3p
0.9p
4.4p
3.6p
(4.5)p
35.5p
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares (millions)
4,917 
 
 
 
 
 
4,917 
 
––––––––––––
 
 
 
 
 
––––––––––––
 
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long lifecycle of the business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D sites are likely to take several years to complete.
 
Major restructuring costs are those related to specific Board approved Major restructuring programmes and are excluded from Adjusted results. Major restructuring programmes, including integration costs following material acquisitions, are those that are structural and are of a significant scale where the costs of individual or related projects exceed £25 million. Other ordinary course smaller scale restructuring costs are retained within Total and Adjusted results.
 
Total Major restructuring charges incurred in the quarter were £199 million (Q3 2018: £283 million), analysed as follows:
 
 
Q3 2019
 
Q3 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
£m
 
Non-cash
£m
 
Total
£m
 
Cash
£m
 
Non-cash
£m
 
Total
£m
 
 
 
 
 
 
 
 
 
 
 
 
2018 major restructuring programme (incl. Tesaro)
68 
 
45
 
113 
 
128
 
-
 
128
Consumer Healthcare Joint Venture integration Programme
104 
 
-
 
104 
 
-
 
-
 
-
Combined restructuring and integration programme
(30)
 
12
 
(18)
 
136
 
19
 
155
 
 
 
 
 
 
 
 
 
 
 
 
 
142 
 
57
 
199 
 
264
 
19
 
283
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash charges arose from restructuring of the manufacturing organisation, R&D and some administrative functions, and the integration of Tesaro under the 2018 major restructuring programme, as well as initial integration costs under the Consumer Healthcare Joint Venture integration programme. The reduction in cash charges under the Combined restructuring and integration programme arose from a profit on sale of land. Non-cash charges arising under the 2018 major restructuring programme primarily related to the write-down of assets as part of the plans to reduce the manufacturing network. Non-cash charges under the Combined restructuring and integration programme primarily related to announced plans to restructure the manufacturing network.
 
Total cash payments made in the quarter were £105 million, £28 million for the existing Combined restructuring and integration programme (Q3 2018: £140 million) and £39 million under the 2018 major restructuring programme including the settlement of certain charges accrued in previous quarters and a further £38 million relating to the Consumer Healthcare Joint Venture integration programme.
 
The analysis of Major restructuring charges by business was as follows:
 
 
Q3 2019
£m
 
Q3 2018
£m
 
 
 
 
Pharmaceuticals
47 
 
191 
Vaccines
31 
 
29 
Consumer Healthcare
125 
 
36 
 
 
 
 
 
203 
 
256 
Corporate & central functions
(4)
 
27 
 
 
 
 
Total Major restructuring costs
199 
 
283 
 
 
 
 
 
The analysis of Major restructuring charges by Income statement line was as follows:
 
 
Q3 2019
£m
 
Q3 2018
£m
 
 
 
 
Cost of sales
108 
 
69 
Selling, general and administration
77 
 
209 
Research and development
12 
 
Other operating expense
2 
 
 
 
 
 
Total Major restructuring costs
199 
 
283 
 
 
 
 
 
The Major restructuring programmes delivered incremental cost savings in the quarter of £0.1 billion.
 
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of £481 million (Q3 2018: £247 million). This primarily reflected £305 million of accounting charges for the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
 
Charge/(credit)
Q3 2019
£m
 
Q3 2018
£m
 
 
 
 
Contingent consideration on former Shionogi-ViiV Healthcare joint venture (including Shionogi preferential dividends)
255 
 
214 
ViiV Healthcare put options and Pfizer preferential dividends
(10)
 
(20)
Contingent consideration on former Novartis Vaccines business
60 
 
54 
Other adjustments
176 
 
(1)
 
 
 
 
Total transaction-related charges
481 
 
247 
 
 
 
 
 
The £255 million charge relating to the contingent consideration for the former Shionogi-ViiV Healthcare joint venture represented an increase in the valuation of the contingent consideration due to Shionogi, primarily as a result of updated exchange rate assumptions and a £109 million unwind of the discount.
 
Other adjustments included the unwind of the fair market value uplift on inventory (£148 million) as well as transaction costs arising on completion of the Consumer Healthcare Joint venture with Pfizer.
 
An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on page 10.
 
Divestments, significant legal charges and other items
Divestments and other items included a gain in the quarter of £295 million arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands. This was partly offset by certain other Adjusting items. A charge of £18 million (Q3 2018: £12 million) for significant legal matters included the benefit of the settlement of existing matters as well as provisions for ongoing litigation. Significant legal cash payments were £5 million (Q3 2018: £12 million).
 
 
Financial performance – nine months 2019
 
Total results
 
The Total results for the Group are set out below.
 
 
9 months 2019
£m
 
9 months 2018
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
 
 
Turnover
24,855 
 
22,624 
 
10 
 
 
 
 
 
 
 
 
 
Cost of sales
(8,615)
 
(7,337)
 
17 
 
17 
 
 
 
 
 
 
 
 
Gross profit
16,240 
 
15,287 
 
 
 
 
 
 
 
 
 
 
Selling, general and administration
(7,959)
 
(7,295)
 
 
Research and development
(3,325)
 
(2,817)
 
18 
 
14 
Royalty income
269 
 
220 
 
22 
 
22 
Other operating expense
(166)
 
(1,466)
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit
5,059 
 
3,929 
 
29 
 
20 
 
 
 
 
 
 
 
 
Finance income
87 
 
57 
 
 
 
 
Finance expense
(706)
 
(589)
 
 
 
 
Profit on disposal of associates
- 
 
 
 
 
 
Share of after tax profits of associates and joint ventures
70 
 
26 
 
 
 
 
 
 
 
 
 
 
 
 
Profit before taxation
4,510 
 
3,426 
 
32 
 
22 
 
 
 
 
 
 
 
 
Taxation
(759)
 
(680)
 
 
 
 
Tax rate %
16.8%
 
19.8%
 
 
 
 
 
 
 
 
 
 
 
 
Profit after taxation
3,751 
 
2,746 
 
37 
 
27 
 
 
 
 
 
 
 
 
Profit attributable to non-controlling interests
405 
 
338 
 
 
 
 
Profit attributable to shareholders
3,346 
 
2,408 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,751 
 
2,746 
 
37 
 
27 
 
 
 
 
 
 
 
 
Earnings per share
67.7p
 
49.0p
 
38 
 
28 
 
 
 
 
 
 
 
 
 
 
Adjusted results
 
The Adjusted results for the Group are set out below. Reconciliations between Total results and Adjusted results for the nine months 2019 and the nine months 2018 are set out on pages 34 and 35.
 
 
9 months 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
% of
turnover
 
Growth
£%
 
Reported
growth
CER%
 
Pro-forma
growth
CER%
 
 
 
 
 
 
 
 
 
 
Turnover
24,855 
 
100 
 
10 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(7,231)
 
(29.1)
 
9 
 
8 
 
6 
Selling, general and administration
(7,598)
 
(30.6)
 
10 
 
7 
 
5 
Research and development
(3,175)
 
(12.8)
 
17 
 
13 
 
12 
Royalty income
269 
 
1.1 
 
22 
 
22 
 
22 
 
 
 
 
 
 
 
 
 
 
Adjusted operating profit
7,120 
 
28.6 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted profit before tax
6,577 
 
 
 
9 
 
3 
 
 
Adjusted profit after tax
5,466 
 
 
 
12 
 
7 
 
 
Adjusted profit attributable to shareholders
4,904 
 
 
 
13 
 
7 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per share
99.2p
 
 
 
12 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit by business
9 months 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
% of
turnover
 
Growth
£%
 
Reported
growth
CER%
 
Pro-forma
growth
CER%
 
 
 
 
 
 
 
 
 
 
Pharmaceuticals
6,029 
 
46.4 
 
(1)
 
(5)
 
(5)
Pharmaceuticals R&D*
(2,442)
 
 
 
29 
 
24 
 
24 
 
 
 
 
 
 
 
 
 
 
Total Pharmaceuticals
3,587 
 
27.6 
 
(14)
 
(17)
 
(17)
Vaccines
2,388 
 
44.1 
 
57 
 
47 
 
47 
Consumer Healthcare
1,434 
 
22.3 
 
23 
 
19 
 
9 
 
 
 
 
 
 
 
 
 
 
 
7,409 
 
29.8 
 
 
 
Corporate & other unallocated costs
(289)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted operating profit
7,120 
 
28.6 
 
9 
 
3 
 
2 
 
 
 
 
 
 
 
 
 
 
 
*
Operating profit of Pharmaceuticals R&D segment, which is the responsibility of the Chief Scientific Officer and President, R&D. It excludes ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals segment.
 
 
Turnover
 
Pharmaceuticals turnover
 
 
9 months 2019
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
Respiratory
2,189
 
23 
 
18 
HIV
3,597
 
 
Immuno-inflammation
443
 
32 
 
25 
Oncology
164
 
 
Established Pharmaceuticals
6,603
 
(4)
 
(6)
 
 
 
 
 
 
 
12,996
 
 
 
 
 
 
 
 
US
5,444
 
 
(4)
Europe
3,077
 
 
International
4,475
 
 
 
 
 
 
 
 
 
12,996
 
 
 
 
 
 
 
 
 
Pharmaceuticals turnover in the nine months was £12,996 million, up 4% AER, 1% CER. Respiratory sales were up 23% AER, 18% CER, to £2,189 million, on growth of Trelegy Ellipta and Nucala. HIV sales were up 4% AER, 1% CER, to £3,597 million, with growth in Juluca and Dovato partly offset by a decline in Triumeq. Sales of Established Pharmaceuticals were £6,603 million, down 4% AER, 6% CER, including the impact of loss of exclusivity of Advair.
 
In the US, sales grew 2% AER but declined 4% CER. Excluding Advair and Relvar/Breo Ellipta, impacted by genericisation of the ICS/LABA market, growth was 15% AER, 9% CER. Continued growth of Nucala, Trelegy Ellipta and Benlysta was offset by the decline in Established Products including the loss of exclusivity of Advair. In Europe, sales grew 4% AER, 4% CER, with strong growth in Respiratory partly offset by a decline in Established Pharmaceuticals. International grew 7% AER, 6% CER, with growth in all therapy areas.
 
Respiratory
Total Respiratory sales were up 23% AER, 18% CER, with strong growth in all regions. Ellipta product sales grew 17% AER, 13% CER, with Europe up 30% AER, 30% CER and International up 33% AER, 30% CER on Trelegy and Relvar/Breo growth. Nucala was up 39% AER, 39% CER in Europe and 65% AER, 56% CER in International. In the US, Trelegy Ellipta and Nucala growth more than offset the decline in Relvar/Breo Ellipta on post generic ICS/LABA price pressure.
 
Sales of Nucala were £550 million in the nine months and grew 41% AER, 35% CER, continuing to benefit from the global rollout of the product. US sales of Nucala grew 37% AER, 29% CER to £321 million.
 
Sales of Ellipta products were up 17% AER, 13% CER to £1,639 million, driven by growth in Europe and International regions. In the US, sales grew 8% AER, 2% CER, reflecting continued competitive pricing pressures for ICS/LABAs, post generic Advair. Sales of Trelegy Ellipta contributed £346 million globally in the nine months, driven by an increase in US market share.
 
Relvar/Breo Ellipta sales were down 7% AER, 10% CER. This was driven by the US, where Relvar/Breo Ellipta declined 31% AER, 35% CER as a result of competitive pricing pressures and the impact of generic Advair on the ICS/LABA market. In Europe and International, Relvar/Breo Ellipta continued to grow, up 14% AER, 14% CER in Europe, and 23% AER, 21% CER in International.
 
HIV
HIV sales grew 4% AER, 1% CER to £3,597 million in the nine months. The dolutegravir franchise grew 7% AER, 3% CER, delivering sales of £3,425 million. The remaining portfolio, with sales of £172 million (5% of total HIV sales), declined 26% AER, 26% CER and reduced the overall HIV growth by two percentage points.
 
Sales of dolutegravir products were £3,425 million, with Triumeq and Tivicay delivering sales of £1,911 million and £1,236 million, respectively. The two-drug regimens, Juluca and Dovato, delivered sales of £278 million in the nine months with combined growth more than offsetting the decline in the three-drug regimen, Triumeq, as the business transitions to the new portfolio.
 
In the US, following the launch of Dovato in April 2019, combined sales of the two-drug regimens were £234 million. US dolutegravir sales grew 5% AER but declined 1% CER, reflecting a year-on-year share decline as the business transitions to the new two-drug portfolio, partly offset by a net price benefit. In Europe, Dovato and Juluca reported combined sales of £40 million, and total dolutegravir sales grew 1% AER, 1% CER, with growth in market share more than offsetting price erosion and the timing of clawback payments. International performed strongly with total dolutegravir sales growth of 27% AER, 26% CER, driven by Tivicay and Triumeq.
 
Oncology
Sales of Zejula, were £163 million in the period from the date of acquisition, comprising £97 million in the US and £66 million in Europe.
 
Immuno-inflammation
Sales of Benlysta in the nine months were up 32% AER, 26% CER to £443 million, including sales of the sub-cutaneous formulation of £189 million. In the US, Benlysta grew 29% AER, 22% CER to £387 million.
 
Established Pharmaceuticals
Sales of Established Pharmaceuticals in the nine months were £6,603 million, down 4% AER, 6% CER.
 
Established Respiratory products declined 7% AER, 9% CER to £2,935 million, with the decline in Advair/Seretide partly offset by higher sales of Ventolin and allergy products. In the US, a generic version of Advair was launched in February, resulting in a 50% AER, 53% CER decline in the nine months. In Europe, Seretide sales were down 15% AER, 15% CER to £383 million, reflecting continued competition from generic products and the transition of the Respiratory portfolio to newer products. In International, sales of Seretide grew 1% AER but were flat at CER. Globally, Ventolin grew by 36% AER, 32% CER, driven by the strong uptake of an authorised generic version in the US.
 
The remainder of the Established Pharmaceuticals portfolio declined 2% AER, 3% CER to £3,668 million, with Lamictal down 8% AER, 11% CER to £421 million on generic competition in the US and International, partly offset by growth in Augmentin in the nine months and a European Relenza tender.
 
 
Vaccines turnover
 
 
9 months 2019
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
Meningitis
815
 
18 
 
16 
Influenza
403
 
22 
 
16 
Shingles
1,278
 
>100 
 
>100 
Established Vaccines
2,919
 
3 
 
1 
 
 
 
 
 
 
 
5,415
 
23 
 
19 
 
 
 
 
 
 
US
2,996
 
47 
 
39 
Europe
1,138
 
(4)
 
(4)
International
1,281
 
7 
 
7 
 
 
 
 
 
 
 
5,415
 
23 
 
19 
 
 
 
 
 
 
 
Vaccines turnover grew 23% AER, 19% CER to £5,415 million, primarily driven by growth in sales of Shingrix. Meningitis vaccines also contributed to growth mainly due to Bexsero demand and share gains in the US together with stronger demand in International. Influenza vaccines sales were up 22% AER, 16% CER to £403 million, primarily due to share gains in the US and International together with the favourable impact of phasing and a prior-year returns provision reversal in the US. Established Vaccines grew 3% AER, 1% CER to £2,919 million, primarily reflecting strong growth in Boostrix, Infanrix, Pediarix and Hepatitis, partly offset by supply constraints in MMRV vaccines and lower Cervarix demand in International.
 
Meningitis
Meningitis sales grew 18% AER, 16% CER to £815 million. Bexsero sales grew 21% AER, 19% CER to £567 million, driven by demand and share gains in the US together with stronger demand in International and Europe, partly offset by the completion of the vaccination of catch-up cohorts in certain markets in Europe. Menveo grew 7% AER, 3% CER, primarily reflecting improved supply in International.
 
Influenza
Fluarix/FluLaval sales were up 22% AER, 16% CER to £403 million, primarily due to share gains in the US and International together with the favourable impact of phasing and a prior-year returns provision reversal in the US.
 
Shingles
Shingrix recorded sales of £1,278 million, primarily driven by continued strong uptake and the favourable benefit of prior-period rebate adjustments in the US. Germany and Canada also contributed to growth.
 
Established Vaccines
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) grew 15% AER, 12% CER. Boostrix sales were up 20% AER, 17% CER to £454 million mainly due to strong demand and favourable phasing in International together with share gains and higher demand in the US.
 
Infanrix/Pediarix sales grew 12% AER, 9% CER to £577 million, reflecting favourable US CDC stockpile movements and stronger demand in International, partly offset by competitive pressures in Europe.
 
Hepatitis vaccines grew 10% AER, 6% CER to £679 million, primarily due to favourable CDC stockpile movements and the continued benefit from a competitor supply shortage in the US, partly offset by supply constraints and lower demand in Europe.
 
Synflorix sales grew 8% AER, 8% CER to £344 million, primarily due to stronger demand in both International and Europe.
 
Rotarix sales were up 8% AER, 6% CER to £417 million, reflecting stronger demand in International.
 
MMRV vaccines sales declined 33% AER, 33% CER to £162 million, largely driven by supply constraints in Europe and International.
 
Cervarix sales were down 49% AER, 49% CER to £63 million, reflecting competitive pressure in China and lower demand elsewhere in International.
 
 
Consumer Healthcare turnover
 
 
9 months 2019
 
 
 
 
 
 
 
 
 
 
 
£m
 
Growth
£%
 
Growth
CER%
 
 
 
 
 
 
 
 
Wellness
 
 
3,232
 
10
 
8
Oral health
 
 
2,022
 
8
 
6
Nutrition
 
 
713
 
46
 
43
Skin health
 
 
457
 
1
 
-
 
 
 
 
 
 
 
 
 
 
 
6,424
 
12
 
10
 
 
 
 
 
 
 
 
US
 
 
1,694
 
27
 
19
Europe
 
 
1,835
 
2
 
2
International
 
 
2,895
 
11
 
10
 
 
 
 
 
 
 
 
 
 
 
6,424
 
12
 
10
 
 
 
 
 
 
 
 
Pro-forma growth
 
 
 
 
 
 
2
 
 
 
 
 
 
 
 
 
Consumer Healthcare sales grew 12% AER, 10% CER to £6,424 million in the nine months. On a pro-forma basis, sales grew 2% CER, driven largely by the International region with double digit growth in India and China. At a category level, strong growth in Oral health was partly offset by a decline in Skin health.
 
Divestments and the phasing out of low margin contract manufacturing had a negative impact of approximately one percentage point on pro-forma growth.
 
Sales of the Consumer Healthcare business include nine weeks of legacy Pfizer brand sales arising after the creation of the Joint Venture. The legacy Pfizer brands have been included in the existing categories and geographic regions used to report Consumer Healthcare sales. GSK expects to revise this category structure for reporting from Q1 2020 onwards.
 
Wellness
Wellness sales grew 10% AER, 8% CER to £3,232 million. On a pro-forma basis, sales grew in low single digits, with a strong performance in Pain relief partly offset by a decline in Respiratory and the phasing out of low margin contract manufacturing. In the Pain relief category, Panadol continued to perform strongly, particularly in the Middle East and Africa, and benefited from 2018 regulatory and distribution changes. Voltaren sales grew in low single-digits, reflecting a stronger Q3 performance. Respiratory sales declined as Flonase growth was offset by a decline in Theraflu, following a strong cold and flu season comparator in 2018. Growth was also impacted by weak performances in other Respiratory brands.
 
Oral health
Oral health grew 8% AER, 6% CER to £2,022 million. Sensodyne reported broad-based, double-digit growth, benefiting from major innovation launches. Gum health sales saw double digit-growth, reflecting strong performances in Europe and the US. Denture care grew in low single-digits. Oral health growth was also impacted by a decline in non-strategic brands.
 
Nutrition
Nutrition sales grew 46% AER, 43% CER to £713 million, largely due to the inclusion of the Pfizer vitamins, minerals and supplements portfolio. On a pro-forma basis, sales grew in low single digits, with India growing in high single digits.
 
Skin health
Skin health sales of £457 million grew 1% AER, but were flat at CER, largely due to the addition of Chapstick from the Pfizer portfolio, offset by declines in other Skin health brands. On a pro-forma basis, sales declined in mid-single digits, largely due to divestments of small tail brands in the US and UK, which had a negative impact on pro-forma growth of the category of four percentage points.
 
 
Operating performance
 
Cost of sales
Total cost of sales as a percentage of turnover was 34.7%, 2.2 percentage points higher at AER and 2.9 percentage points higher in CER terms compared with 2018. This reflected an increase in the costs of manufacturing restructuring programmes, primarily as a result of write downs in a number of manufacturing sites, the unwind of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer as well as increased amortisation of intangible assets.
 
Excluding these and other Adjusting items, Adjusted cost of sales as a percentage of turnover was 29.1%, down 0.3 percentage points at AER, but 0.3 percentage points higher at CER compared with 2018. On a pro-forma basis, Adjusted cost of sales as a percentage of turnover was 29.1%, 0.2 percentage points higher at CER, compared with 2018. This reflected continued adverse pricing pressure in Pharmaceuticals, particularly in Respiratory, an unfavourable product mix in Pharmaceuticals and a non-restructuring related write down in a manufacturing site. This was partly offset by a more favourable product mix in Vaccines, primarily due to growth of Shingrix in the US and in Consumer Healthcare, a favourable impact of inventory adjustments in Vaccines and a further contribution from integration and restructuring savings in Pharmaceuticals and Consumer Healthcare.
 
Selling, general and administration
Total SG&A costs as a percentage of turnover were 32.0%, 0.2 percentage points lower at AER but flat on a CER basis. This included increased significant legal costs, costs related to the acquisition of the Pfizer consumer healthcare business, as well as a reversal of an indemnity receivable from Novartis following a tax settlement, with an equivalent release of a tax provision which was reflected in the tax charge, partly offset by reduced restructuring costs.
 
Excluding these and other Adjusting items, Adjusted SG&A costs as a percentage of turnover were 30.6%, 0.1 percentage points lower at AER than in 2018 but 0.1 percentage points higher on a CER basis. On a pro-forma basis, Adjusted SG&A costs as a percentage of turnover was 30.6%, flat at CER, compared with 2018.
 
The growth in Adjusted SG&A costs of 10% AER, 7% CER and 5% CER on a pro-forma basis reflected increased investment resulting from the acquisition of Tesaro and in promotional product support, particularly for new launches in Vaccines, Respiratory and HIV as well as increased costs for a number of legal settlements in Q3 2019. This was partly offset by the continuing benefit of restructuring in Pharmaceuticals and the tight control of ongoing costs, particularly in non-promotional spending across all three businesses.
 
Research and development
Total R&D expenditure was £3,325 million (13.4 % of turnover), up 18% AER, 14% CER. Adjusted R&D expenditure was £3,175 million (12.8% of turnover), 17% higher at AER, 13% higher at CER than the same period in 2018. On a pro-forma basis, Adjusted R&D expenditure grew 12% CER compared with 2018.
 
Pharmaceuticals R&D expenditure was £2,449 million, up 21% AER, 16% CER, reflecting a significant increase in study and clinical trial material investment in Oncology compared with the 9 months to September 2018, reflecting the progression of assets from the Tesaro acquisition, primarily Zejula and TSR-042, and a number of other programmes, including BCMA, NY-ESO and ICOS. R&D expenditure in Vaccines and Consumer Healthcare was £532 million and £194 million, respectively.
 
Royalty income
Royalty income was £269 million (2018: £220 million), up 22% AER, 22% CER, primarily reflecting increased royalties on sales of Gardasil.
 
Other operating expense
Net other operating expense of £166 million (2018: £1,466 million) primarily reflected accounting charges of £408 million (2018: £1,617 million) arising from the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
 
This included a re-measurement charge of £421 million (2018: £927 million) for the contingent consideration liability due to Shionogi, primarily arising from changes in exchange rate assumptions and the unwind of the discount. 2018 also included a re-measurement charge of £658 million in relation to the Consumer Healthcare put option. In addition there was an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands of £247 million in the nine months. The cumulative increase in value since the signing of the proposed transaction was £345 million. This was partly offset by the profit on a number of asset disposals.
 
Operating profit
Total operating profit was £5,059 million in the nine months compared with £3,929 million in 2018. Reduced re-measurement charges on the contingent consideration liabilities, no Consumer Healthcare put option charge and an increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands were partly offset by increased charges for major restructuring, primarily arising from write downs in a number of manufacturing sites.
 
Excluding these and other Adjusting items, Adjusted operating profit was £7,120 million, 9% higher than 2018 at AER and 3% higher at CER on a turnover increase of 7% CER. The Adjusted operating margin of 28.6% was 0.3 percentage points lower at AER, and 1.0 percentage points lower on a CER basis than in 2018. On a pro-forma basis, Adjusted operating profit was 2% higher at CER on a turnover increase of 5% CER. The Adjusted pro-forma operating margin of 28.6% was 0.9 percentage points lower on a CER basis than in 2018.
 
The increase in Adjusted operating profit primarily reflected the benefit from sales growth in all three businesses, particularly Vaccines, a more favourable mix in Vaccines and Consumer Healthcare, a benefit from favourable inventory adjustments in Vaccines, the continued benefit of restructuring and tight control of ongoing costs across all three businesses. This was partly offset by continuing price pressure, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, investment in R&D including a significant increase in Oncology investment, partly on the assets from the Tesaro acquisition, and investments in promotional product support, particularly for new launches in Vaccines, HIV and Respiratory.
 
Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in the nine months amounted to £660 million (2018: £915 million). This included cash payments made to Shionogi of £645 million (2018: £584 million).
 
Operating profit by business
Pharmaceuticals operating profit was £3,587 million, down 14% AER, 17% CER on a turnover increase of 1% CER. The operating margin of 27.6% was 6.0 percentage points lower at AER than in 2018 and 6.2 percentage points lower on a CER basis. This primarily reflected the increase in cost of sales percentage due to the continued impact of lower prices, particularly in Respiratory, including the impact of the launch of a generic version of Advair in the US in February 2019, an unfavourable product mix, primarily as a result of the growth in some lower margin established products, a non-restructuring related write down in a manufacturing site in Q3 and higher legal costs, together with a significant increase in Oncology R&D investment and investment in new product support and targeted priority markets. This was partly offset by the continued benefit of restructuring and tight control of ongoing costs and the benefits of re-prioritisation of the R&D portfolio.
 
Vaccines operating profit was £2,388 million, 57% AER, 47% CER higher than in 2018 on a turnover increase of 19% CER. The operating margin of 44.1% was 9.6 percentage points higher at AER than in 2018 and 8.2 percentage points higher on a CER basis. This was primarily driven by enhanced operating leverage from strong sales growth, particularly Shingrix in the US, improved product mix and higher royalty income. Increased SG&A investment to support business growth was partly offset by income from one-off settlements.
 
Consumer Healthcare operating profit was £1,434 million, up 23% AER, 19% CER higher on a turnover increase of 10% CER. On a pro-forma basis, operating profit was £1,434 million, 9% CER higher on a turnover increase of 2% CER. The operating margin of 22.3% was 2.1 percentage points higher at AER and 1.7 percentage points higher on a CER basis than in 2018. The pro-forma operating margin of 22.3% was 1.4 percentage points higher on a CER basis. This primarily reflected continued manufacturing restructuring savings, improved growth from higher margin power brands and divestment of lower margin tail products as well as tight control of promotional and other operating expenses.
 
Net finance costs
Total net finance costs were £619 million compared with £532 million in 2018. Adjusted net finance costs were £613 million compared with £525 million in 2018. The increase primarily reflected higher debt levels following the acquisition from Novartis of its stake in the Consumer Healthcare Joint Venture in June 2018 and the acquisition of Tesaro in January 2019, as well as an adverse comparison with a one-off accounting adjustment of £20 million to amortisation of interest charges in 2018. This was partly offset by the benefit from older bonds being refinanced at lower interest rates, a fair value gain on interest rate swaps and interest of £23 million in Q3 2018 on an historic tax settlement. Following the introduction of IFRS 16, ‘Leases’, finance costs included an unwind of the discount on the lease liability of £29 million in the nine months.
 
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates was £70 million (2018: £26 million). This included a one-off adjustment of £51 million to reflect GSK’s share of increased after tax profits of Innoviva primarily as a result of a non-recurring income tax benefit.
 
Taxation
The charge of £759 million represented an effective tax rate on Total results of 16.8% (2018: 19.8%) and reflected the different tax effects of the various Adjusting items, including the non-taxable profit arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands as well as recognition of a deferred tax liability as a result of disposal of a manufacturing site. Tax on Adjusted profit amounted to £1,111 million and represented an effective Adjusted tax rate of 16.9% (2018: 19.5%), reflecting the impact of the settlement of a number of open issues with tax authorities.
 
Issues related to taxation are described in Note 14, ‘Taxation’ in the Annual Report 2018. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.
 
Non-controlling interests
The allocation of Total earnings to non-controlling interests amounted to £405 million (2018: £338 million). The increase was primarily due to an increased allocation of ViiV Healthcare profits to £290 million (2018: £175 million) and higher net profits in some of the Group’s other entities with non-controlling interests. This was partly offset by the lower allocation of Consumer Healthcare profits of £47 million (2018: £117 million) following the buyout of Novartis’ interest in June 2018 and the completion of the new Consumer Healthcare Joint Venture with Pfizer on 31 July 2019.
 
The allocation of Adjusted earnings to non-controlling interests amounted to £562 million (2018: £535 million). The increase in allocation was again primarily due to increased allocation of ViiV Healthcare profits of £391 million (2018: £371 million) and higher net profits in some of the Group’s other entities with non-controlling interests, partly offset by the lower allocation of Consumer Healthcare profits of £103 million (2018: £118 million).
 
Earnings per share
Total earnings per share was 67.7p, compared with 49.0p in 2018. The increase in earnings per share primarily reflected reduced re-measurement charges on the contingent consideration liabilities and put options, an increase in the value of the shares in Hindustan Unilever Limited to be received on the disposal of Horlicks and other Consumer Healthcare brands, an improved trading performance, a reduced effective tax rate and the increased share of after tax profit of the associate Innoviva.
 
Adjusted EPS of 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER, on a 3% CER increase in Adjusted operating profit. The improvement primarily resulted from the lower non-controlling interest allocation of Consumer Healthcare profits, a reduced effective tax rate and an increased share of after tax profits of associates as a result of a non-recurring income tax benefit in Innoviva, partly offset by increased net finance costs.
 
Currency impact on nine months 2019 results
The results for the nine months to September 2019 are based on average exchange rates, principally £1/$1.27, £1/€1.13 and £1/Yen 139. Comparative exchange rates are given on page 55. The period-end exchange rates were £1/$1.23, £1/€1.13 and £1/Yen 133.
 
In the nine months, turnover increased 10% AER, 7% CER. Total EPS was 67.7p compared with 49.0p in 2018. Adjusted EPS was 99.2p compared with 88.3p in 2018, up 12% AER, 7% CER. The positive currency impact primarily reflected the weakness of Sterling, particularly against the US$ and Yen, partly offset by weakness in emerging market currencies, relative to 2018. Exchange gains or losses on the settlement of intercompany transactions had a negligible impact on the positive currency impact of five percentage points on Adjusted EPS.
 
 
Adjusting items
The reconciliations between Total results and Adjusted results for the nine months 2019 and the nine months 2018 are set out below.
 
Nine months ended 30 September 2019
 
 
Total
results
£m
Intangible
amort-
isation
£m
Intangible
impair-
ment
£m
Major
restruct-
uring
£m
Transaction-
related
£m
Divestments,
significant
legal and
other items
£m
Adjusted
results
£m
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Turnover
24,855 
 
 
 
 
 
24,855 
Cost of sales
(8,615)
550 
27 
647 
160 
 
(7,231)
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Gross profit
16,240 
550 
27 
647 
160 
 
17,624 
 
 
 
 
 
 
 
 
Selling, general and administration
(7,959)
 
5 
169 
100 
87 
(7,598)
Research and development
(3,325)
48 
30 
71 
 
1 
(3,175)
Royalty income
269 
 
 
 
 
 
269 
Other operating (expense)/income
(166)
 
 
1 
415 
(250)
- 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Operating profit
5,059
598 
62 
888 
675 
(162)
7,120 
 
 
 
 
 
 
 
 
Net finance costs
(619)
 
 
4 
 
2 
(613)
Share of after tax profits of
  associates and joint ventures
70 
 
 
 
 
 
70 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit before taxation
4,510 
598 
62 
892 
675 
(160)
6,577 
 
 
 
 
 
 
 
 
Taxation
(759)
(115)
(11)
(150)
(139)
63 
(1,111)
Tax rate %
16.8%
 
 
 
 
 
16.9%
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit after taxation
3,751 
483 
51 
742 
536 
(97)
5,466 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit attributable to non-controlling interests
405 
 
 
 
157 
 
562 
 
 
 
 
 
 
 
 
Profit attributable to shareholders
3,346 
483 
51 
742 
379 
(97)
4,904 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
 
 
 
 
 
 
 
 
Earnings per share
67.7p
9.8p
1.0p
15.0p
7.7p
(2.0)p
99.2p
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares (millions)
4,945 
 
 
 
 
 
4,945 
 
––––––––––––
 
 
 
 
 
––––––––––––
 
 
Nine months ended 30 September 2018
 
 
Total
results
£m
Intangible
amort-
isation
£m
Intangible
impair-
ment
£m
Major
restruct-
uring
£m
Transaction-
related
£m
Divestments,
significant
legal and
other items
£m
Adjusted
results
£m
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Turnover
22,624 
 
 
 
 
 
22,624 
Cost of sales
(7,337)
400 
69 
211 
11 
 
(6,646)
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Gross profit
15,287 
400 
69 
211 
11 
 
15,978 
 
 
 
 
 
 
 
 
Selling, general and administration
(7,295)
 
2 
267 
61 
32 
(6,933)
Research and development
(2,817)
30 
33 
27 
 
11 
(2,716)
Royalty income
220 
 
 
 
 
 
220 
Other operating (expense)/income
(1,466)
 
 
1 
1,634 
(169)
- 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Operating profit
3,929 
430 
104 
506 
1,706 
(126)
6,549 
 
 
 
 
 
 
 
 
Net finance costs
(532)
 
 
2 
 
5 
(525)
Profit on disposal of associates
3 
 
 
 
 
(3)
- 
Share of after tax profits of
  associates and joint ventures
26 
 
 
 
 
 
26 
 
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
––––––––––––
Profit before taxation
3,426 
430 
104 
508 
1,706 
(124)
6,050